REPORT ON INTERIM AUDIT OF
GEORGIA DEPARTMENT OF NATURAL RESOURCES
ADMINISTRATION OF ITS SUPERFUND COOPERATIVE AGREEMENT
WITH EPA UNDER THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION AND LIABILITY ACT OF i960
GRANT NUMBER V004508-86-8
FOR THE PERIOD OCTOBER 1, 1985 THROUGH SEPTEMBER 30, 1989
BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
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GEORGIA DEPARThENT OF NATURAL RESOURCES
FOR THE PERIOD OCTOBER 1, 1985 TO SEPTEMBER 30, 1989
TABLE OF CONTENTS
PAGE
Background 1
Auditors’ Report on Cost Incurred 2
Exhibit A — Summary of Costs Incurred, Accepted
and Questioned 34
Auditors’ Report on Compliance 5—6
Auditors’ Report on Internal Controls 7—8
Grantee’s Comments 9—10
Auditors’ Response to the Grantee’s Comments 11
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GEORGIA DEPARTMENT OF NATURAL RESOURCES
BACKGROUND
On December 11, 1980, Public Law 96—510, the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA) was enacted by Congress.
CERCLA, commonly known as “Superfund,” was passed to protect public health
and the environment from hazardous substances by authorizing Federal action
to respond to the release, or threatened reledse, from any source, includ-
ing abandoned hazardous waste sites, into any part of the environment. A
Trust Fund was established by Federal and State governments to respond di-
rectly to any problems at uncontrolled hazardous waste disposal sites, not
only in emergency situations, but also at sites where longer term perma-
nent remedies are required.
The blueprint for the Superfund program under CERCLA is the National Con-
tingency Plan (NCP), first published in 1968, as part of the Federal Water
Pollution Control Plan. The NCP laid Out three types of responses for
incidents involving hazardous wastes which are: immediate removal, planned
removal, and remedial response. The first two types of responses were
modifications of an earlier program under the Clean Water Act. Remedial
response was intended to deal with the longer term problem of abandoned or
uncontrolled sites. NCP changes effective February 18, 1986, established
one broad category of removals, thus eliminating the distinction between
immediate and planned removals.
CERCLA provides for compiling a National Priority List (NPL) of hazardous
waste sites for remedial action. In October 1981, EPA compiled an interim
priorities list of 115 hazardous waste sites. The sites were nominated by
the EPA Regional Offices and the States, primarily on the basis of poten-
tial threat to the public health. Also, the threat to the environment was
considered. In September 1983, EPA published the first NPL, which con-
sisted of 406 sites.
CERCLA Section l04(c)(3) provides that no remedial actions shall be taken
unless the State in which the release occurs first enters into a contract
or cooperative agreement with EPA, with assurance of payment of 10 or 50
percent of remedial costs. The State must agree to a cost—share of 10 per-
cent if the site was privately owned. At publicly owned sites (one owned
by the State or a political subdivision thereof), the State is required to
pay 50 percent of all remedial action costs. Cooperative agreements for
remedial investigations, feasibility studies, and remedial designs can be
funded up to 100 percent by EPA.
Georgia Department of Natural Resources (GDNR) had the responsibility of
identifying and ranking sites which posed a risk to the public or the
environment and performance of remedial investigation, design and cleanup
at hazardous waste sites. During the audit, GDNR was actively involved
with the Cooperative Agreement with EPA for remedial activities.
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BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 1210
100 NORTH N1AI BUILD; G
ME IPHIS, TE .ESSEE 38103-5066
9011 526 5956
Ms. Mary Boyer
EPA Office of Inspector General
Audits and Investigations
Southern Division — Suite 276
1375 Peachtree Street, N. E.
Atlanta, Georgia 30309
Dear Ms. Boyer:
We have audited the costs incurred by the Georgia Department of Natural
Resources related to the Cooperative Agreement Grant Number V004508—86—8
for the period October 1, 1985 through September 30, 1989 as detailed in
Exhibit A.
We conducted our audit in accordance with generally accepted auditing stan-
dards and with generally accepted government auditing standards as set
forth in Government Auditing Standards — Standards for Audit of Governmental
Organizations, Programs, Activities and Functions issued by the Comptroller
of the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As part of our examination, we determined the allowability of costs claimed
under the project in accordance with the provisions of the cooperative
agreement and applicable Federal regulations. Exhibit A sets forth the
costs which we questioned in this regard and includes an explanation of the
reasons such costs were questioned.
In our opinion, Exhibit A presents fairly, in all material respects, the
costs incurred by the Georgia Department of Natural Resources under the
cooperative agreement with EPA on the basis described above.
The summary of costs incurred, accepted and questioned (Exhibit A) was pre-
pared on the basis of regulations and criteria established by the U. S.
Environmental Protection Agency relating to Superfund Cooperative Agree-
ments pursuant to Public Law 96—510. Accordingly, Exhibit A is not intended
to present fairly the financial position and results of operations in con-
formity with generally accepted accounting principles.
This report is intended for use in connection with the cooperative agree-
ments to which it refers and should not be used for any other purpose.
December 1, 1989
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EXHIBIT A
Page 1 of 2
GEORGIA DEPARTMENT OF NATURAL RESOURCES
SUMMARY OF COSTS INCURRED, ACCEPTED AND QUESTIONED
FOR THE PERIOD OCTOBER 1, 1985 THROUGH SEPTEMBER 30, 1989
Questioned As Not
Incurred* Accepted Eligible Supported Necessary Notes
Personnel $ 807,979 $ 807,979 $ — $ — $
Fringe benefits 217,495 217,495
Travel 20,102 10,795 5,813 3,494 — 1—2
Equipment 3,629 3,312 317 — 1
Other 180,011 175,387 — 4,624 — 1
TOTAL $1,229,216 1,214,968 $ 5,813 $ 8,435 $ —
Less: EPA pay-
ments through
September 30,
1989 1,199,066
BALANCE DUE GRANTEE $ 15,902
*The amount incurred represents expenditures reported through September 30, 1989.
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EXHIBIT A
Page 2 of 2
GEORGIA DEPARTMENT OF NATURAL RESOURCES
FOR THE PERIOD OCTOBER 1, 1985 THROUGH SEPTEMBER 30, 1989
NOTES TO THE STATEMENTS
Note 1 — Undocumented Costs
We noted that the grantee incurred costs totaling $185,119 for travel,
equipment and other project related services on the Financial Status Report
During our audit field work, the grantee was unable to provide us with
supporting documentation (invoices and/or cancelled checks) substantiating
that $8,435 of the costs had been incurred and paid because the records
for fiscal year ending June 30, 1986 had been destroyed. 0MB A—87 states
that all costs charged to a project must be adequately documented. There-
fore, we have questioned the $8,435 as being unallowable for grant parti-
cipation. Below is a sununary of the undocumented costs questioned:
Travel $3,494
Equipment 317
Other 4,624
TOTAL COSTS QUESTIONED $8,435
Grantee’s Comments
The grantee stated that the questioned costs should not be classified as
undocumented. The grantee believes that since the records were destroyed
the costs should be classified as unavailable for audit.
Note 2 — Travel
The grantee incurred $20,101 on the Financial Status Report for travel costs.
We noted that thirty—five percent (35%) of the costs tested was ineligible
for EPA participation because of accounts payable posting errors and em-
ployees being charged to the wrong grant. We believe that the thirty—five
percent (35%) ratio should be applied to the total costs. Therefore, we
have questioned 35% or $5,812 of travel cost ($20,101 minus $3,494 undocu—
mented costs in note IA above x 35%) as being ineligible for EPA participation.
Grantee’s Comments
Refer to Grantee’s comments on pages 9 and 10.
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BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 1210
100 NORTH MAIN BUILDIP G
MEMPHIs, TE,, EssEE 38103-5066
901) 526 5956
December 1, 1989
AUDITORS’ REPORT ON COMPLIANCE
Ms. Mary Boyer
EPA Office of Inspector General
Audits and Investigations
Southern Division — Suite 276
1375 Peachtree Street, N. E.
Atlanta, Georgia 30309
We have audited the summary of costs incurred of Georgia Department of
Natural Resources (GDNR), Grant Number V004508—86—8, for the period
October 1, 1985 through September 30, 1989 and have issued our report
dated December 1, 1989.
We conducted our audit in accordance with generally accepted auditing stan-
dards and generally accepted government auditing standards as set forth in
Government Auditing Standards — Standards for Audit of Governmental Organi-
zations, Programs, Activities and Functions . Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
Compliance with laws, regulations, contracts and grants applicable to
Georgia Department of Natural Resources Grant Number V004508—86—8 is the
responsibility of Georgia Department of Natural Resources management. As
part of obtaining reasonable assurance about whether the costs incurred
are free from material misstatements, we performed tests of Georgia Depart-
ment of Natural Resources laws, regulations, contracts and grants. However,
our objective was not to provide an opinion on overall compliance with such
provisions.
In our opinion, the tested transactions of GDNR complied with the material
terms and conditions of the grant award and the tested grant financial
reports were accurate and complete insofar as it was reasonable and practi-
cal to determine, except as noted in the following paragraphs. Further,
nothing additional came to our attention as a result of the foregoing
procedures to indicate that GDNR had not complied with the material terms
and conditions referred to above, and that the grant financial reports were
not accurate and complete within reasonable and practical limitations
for those transactions not selected for testing.
Travel
During our review, we noted that travel costs were being charged for persons
not approved under the grant.
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Ms. Mary Boyer
December 1, 1989
Page 2
AUDITORS’ REPORT ON COMPLIANCE
(Continued)
Recommendation
We recommend that only approved personnel travel cost be charged to the
grant.
Undocumented Costs
During our examination, we noted that the grantee had destroyed all records
for costs incurred during fiscal year June 30, 1986.
Recommendation
We recommend that the grantee maintain records three (3) years from the date
of submission of the final financial status report (Reference: 40 CFR 30.805).
The final determination regarding allowability or unallowability of costs
as a result of our examination will be made by EPA.
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BRANDON, SMITH AND JONES
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 1210
100 Nogiti MAIN BUILDING
MEMPHIS. TEM .ESSEE 38103.5066
(901) 526 5956
December 1, 1989
AUDITORS’ REPORT ON INTERNAL CONTROL STRUCTURE
Ms. Mary Boyer
EPA Office of Inspector General
Audits and Investigations
Southern Division — Suite 276
1375 Peachtree Street, N. E.
Atlanta, Georgia 30309
We have examined the summary of costs incurred of Georgia Department of
Natural Resources, Grant Number V004508—86—8, for the period October 1,
1985 through September 30, 1989 and issued our report thereon.
We conducted our audit in accordance with generally accepted auditing stan-
dards and generally accepted government auditing standards as set forth in
Government Auditing Standards — Standards for Audit of Governmental Organi-
zations, Programs Activities and Functions . Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
In planning and performing our audit of the costs incurred of Ceorgia
Department of Natural Resources, Grant Number V004508—86—8, for the period
October 1, 1985 through September 30, 1989, we considered its internal con-
trol structure in order to determine our auditing procedures for the purpose
of expressing our opinion on the financial statements and not to provide
assurance on the internal control structure.
The management of Georgia Department of Natural Resources is responsible
for establishing and maintaining an internal control structure. In fulfill-
ing this responsibility, estimates and judgments by management are required
to assess the expected benefits and related costs of internal control
structure policies and procedures. The objectives of an internal control
structure are to provie management with reasonable, but not absolute,
assurance that assets are safeguarded against loss from unauthorized use
or disposition, and that transactions are executed in accordance with
management’s authorization and recorded properly to permit preparation of
financial statements in accordance with generally accepted accounting prin-
ciples. Because of inherent limitations in any internal control structure,
errors or irregularities may nevertheless occur and not be detected. Also,
projections of any evaluation of the structure to future periods is subject
to the risk that procedures may become inadequate because of changes in
conditions or that the effectiveness of the design and operation of poli-
cies and procedures may deteriorate.
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Ms. Mary Boyer
December 1, 1989
Page 2
AUDITORS’ REPORT ON INTERNAL CONTROL STRUCTURE
(Continued)
For the purpose of this report, we have classified the significant internal
control structure policies and procedures in the following categories:
General
Disbursements
Payroll
Contractual procurement
Cash management (Letter of Credit)
Property and equipment
Indirect charges
For all of the internal control structure categories listed above, we ob-
tained an understanding of the design of relevant policies and procedures
and whether they have been placed in operation and we assessed control risk.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be mate-
rial weaknesses under standards established by the American Institute of
Certified Public Accountants. A material weakness is a reportable condi-
tion in which the design or operation of one or more of the specific
internal control structure elements does not reduce to a relatively low
level the risk that errors or irregularities in amounts that would be ma-
terial in relation to the financial statements being audited may occur and
not be detected within a timely period by employees in the normal course of
performing their assigned functions. We noted no matters involving the
internal control structure and its operation that we consider to be material
weaknesses, however, we did note some reportable conditions — they are out-
lined in the paragraphs below:
Undocumented Costs
During our examination, we noted that the grantee had destroyed all records
for costs incurred during fiscal year June 30, 1986.
Recommendat ion
We recommend that the grantee maintain all records three (3) years from the
date of submission of the final financial status report (Reference 40 CFR
30.805).
This report is intended for use in connection with the Cooperative Agree-
ment to which it refers and should not be used for any other purpose.
Sincerely
J 4 4
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GRANTEE’ S COMMENTS Georgia Department of Natural Resources
Page 1 of 2 205 Butler Street, SE , Suite 1252, Atlanta, Georgia 30334
J Leonard Ledbetter. Commissioner
404/656-3500
March 15, 1990
Mr. Ernest Jones, Jr.
Brandon, Smith & Jones, CPA
Suite 1210
100 North Main Building
Memphis, TN 38103—5066
Dear Mr. Jones:
This is in response to your letter of February 21, 1990 about the draft
audit report of the Department’s grant from U.S. EPA under CERCLA grant number
V004508—86—8 for the period October 1, 1985 through September 30, 1989.
We appreciate the opportunity to review the draft and trust these comments
will assist you in finalizing your report to EPA. The following comments
are referenced to specific sections in the draft report.
1) Exhibit A, page 3 (Summary):
Will be addressed in subsequent sections.
2) Exhibit A, page 4:
Regarding Note 1 — Undocumented Costs questioning $8,435.00, for the
fiscal year ending June 30, 1986; for this and other Federal grants, all
costs incurred were completely documented for the FY 1986 audit report prepared
by the Georgia Department of Audits in accordance with the “Single Audit
Act of 1984”. A copy of that audit was sent to the U.S. Environmental
Protection Agency. That audit did not identify any findings or undocumented
costs.
The annual single audit performed by the State Audit Department included
a sample of documents from all Federal programs, including this grant. Once
the Department’s books are audited, records are retained for a reasonable
period of time, after which it is inefficient and unnecessary to keep the
voluminous documentation. The Department’s position is that the unavailability
of the documents for the period ending June 30, 1986 (considering that this
grant had already been subjected to the single audit by the State Audit Depart-
ment) is not cause for costs to be cited as unallowable. We request that
this be removed from the report or that the records simply be classified
as unavailable for audit. It would be appropriate to note that the Departmernt
was audited by the State Audit Department for this time period.
3) Exhibit A, page 4:
Regarding Note 2 — Travel , the recomendation that 35 percent of travel costs
should be ineligible for grant participation is not supported by the facts.
On one voucher in June, 1988, a data entry error was made on travel charges
to this grant. Travel in the amount of $1,071.45 was charged to this project
instead of $304.75 that should have been charged. This entry error happened
at the end of the State Fiscal year when the Department’s workload is
exceptionally heavy. It is not appropriate to categorically apply a 35 percent
rate to all travel charges simply because of this audit sample. No other
similar circumstances were identified during the thorough audit made by your
staff.
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GRANTEE’ COMMENTS
Page 2 of 2
Ernest Jones, Jr.
page 2
It is our understanding of generally accepted auditing principles that
applying an across—the—board percentage to total costs based upon the finding
on one sample should not be used without additional sampling and justification.
The Department’s position is that the error identified on the sample in no
way reflects any significant probability that a similar percentage of errors
occurred on the total costs. We request that this finding either be modified
or deleted.
4) Compliance Report, page 6:
The recommendation that only approved personnel travel costs be charged
to Federal grants is being followed by the Department.
Regarding undocumented costs, refer to our previous comments.
Regarding the maintenance of records for three years from the date of
submission of the final financiaL status report, the Department will pay
particular attention to the records retention requirements of Federal grant
agreements.
5) Internal Control Structure, page 8:
Regarding the recommendation about records retention, refer to Our
previous comments.
Concluding remarks:
It would be appropriate to mention that the Department has been, and
is each year, thoroughly audited by the State Audit Department. This report
implies that this audit of the CERCLA grant is the only financial check on
these funds, which is not the case.
Thank you for the opportunity to review this report and we trust that
our responses help you in preparing your final document for transmittal to
the U.S. Environmental Protection Agency.
Sincerely,
44 .
/JJ. L onard Ledbeiter
V Commissioner
JLL: bos
cc: Mr. Creer Tidwell
Region IV Administrator
U.S. EPA
Mr. Bob Page
Office of the Inspector Ceneral
U.S. EPA
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GEORGIA DEPARThENT OF NATURAL RESOURCES
SUMMARY OF COSTS INCURRED, ACCEPTED AND QUESTIONED
FOR THE PERIOD OCTOBER 1, 1985 THROUGH SEPTEMBER 30, 1989
GRANT NUMBER V004508—86—8
AUDITOR’S RESPONSE TO THE GRANTEE’S COMMENTS
Our response is presented in the same order as the grantee’s comments on
pages 9 arId 10.
Exhibit A — Note 1 — Undocumented Costs
We questioned $8,435 because the grantee was unable to provide us with sup-
porting documentation substantiating the cost incurred. We reviewed the
grantee’s comments. Based on our review, we are recommending that the
$8,435 remains questioned and be declared ineligible for EPA’s participation.
Exhibit A — Note 2 — Travel
The grantee incurred $20,101 on the Financial Status Report for travel costs.
We noted that thirty—five percent (35%) of the costs tested was ineligible
for EPA participation because of accounts payable posting errors and em-
ployees being charged to the wrong grant. We believe that the thirty—five
percent (35%) ratio should be applied to the total costs incurred. As a
result, we questioned $5,812.
The grantee stated on page 9 that travel in the amount of $1,071.45 was
charged to this project instead of $304.75 that should have been charged.
Also, the grantee stated that it is not appropriated to categorically apply
a 35 percent rate to all travel charges simply because of this audit sample.
We did not question 35% of the travel cost because of the data entry error.
The percent includes employees travel being charged to the wrong grant.
Therefore, the $5,812 questioned should be declared ineligible for EPA’s
participation.
Compliance and Internal Findings and Recommendation
The grantee agrees to make every effort possible to comply with the require-
ments of Federal grant agreement(s)/amendment(s).
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